Considerably Bolder Approach Needed On Prescription Drugs

President Bush has taken a halting step toward Medicare modernization in listing reform principles and backing a drug discount card for seniors, but a bolder approach is needed to seize the initiative for the transformative change this aging program requires.

In the 36 years since Medicare was created, there have been dramatic innovations in medicine – treating ulcers with medications costing $500 instead of $28,000 for surgery, for example. Unfortunately, Medicare still pays the $28,000 for surgery but not the $500 for outpatient medicines. Clearly, change is needed.

Doctors didn’t just try to perfect ulcer surgery; they developed a completely different way to treat it. The same attitude is needed to fix Medicare.

Medicare is stuck in 1965 medicine, when drugs could do little and health care meant hospital care. Patients can be exposed to tens of thousands of dollars in medical bills that Medicare doesn’t cover.

Slapping a prescription drug benefit onto this price-controlled, excessively bureaucratic, antiquated program is not the right approach.

In a Rose Garden briefing on a perfect summer day in mid-July, Mr. Bush outlined principles to inject competition and choice into Medicare based upon a plan developed by Sens. John Breaux (D-LA) and Bill Frist (R-TN), both of whom were in the audience to hear Mr. Bush’s remarks.

Mr. Bush acknowledges that major subsidies will continue to flow to the $240-billion Medicare program and its 39 million beneficiaries. But rather than having government regulators call the shots with their 110,000-pages of rules, he would give seniors a greater say by allowing them to select from competing private health plans that include drug coverage, just as members of Congress can do today.

A new facet of the president’s plan is private drug discount cards. Discount cards already are being issued by pharmacies, drug benefit managers, and health plans to provide up to 40% off the retail cost of drugs. Bush would have the federal government put a Medicare stamp of approval on competing discount cards. Seniors would pay a fee to participate, much like a buyer’s club membership fee.

To save money and time, the president isn’t asking for any new money for the plan. As a result, it already is being ridiculed by liberals who instead are salivating at the prospect of enacting the biggest new entitlement since Medicare – a $300 billion-plus drug benefit add-on to Medicare.

But the discount card idea, properly developed, could be the key to recapturing the issue and could plant the seed for real reform.

A plan being developed by the Galen Institute would create a new Prescription Drug Security (PDS) Card program to target immediate assistance to low-income seniors to assist in purchasing routine medications and also provide coverage for large drug expenses. Rather than being an end in itself, the card sets up a new mechanism for delivering a Medicare benefit based upon competition and choice.

Under the Galen plan, low-income beneficiaries would select from a range of plans and in return would receive a PDS Card. The federal government would make a deposit to their card account of $600 a year to help with routine drug expenditures.

The PDS Card account would work like a debit card. When a senior purchases drugs, the pharmacist would swipe the card, like a Visa or debit card, to draw against the individual’s account and pay the pharmacist (with a possible co-payment by the cardholder).

Too difficult: Not so. The Food Stamp program works this way today.

An added bonus: PDS Card holders would be able to keep unspent funds in their account at the end of the year.

The cost of making a $600 annual deposit to the PDS account for low-income seniors is less than $3 billion a year for low-income seniors who don’t have coverage now.

But in addition to receiving help with routine drug purchases, participants in the PDS Card program also would be protected from high-end drugs expenses through a system of private insurance. The first tier of coverage would trigger at $2,000 in annual drug expenditures.

Higher income seniors could also create their own PDS Card accounts into which they could make tax-deductible deposits and purchase the high-end coverage.

Because the PDS Card account deposit is a fixed subsidy, not an open-ended entitlement to benefits, it is perfectly consistent with the kind of Medicare reform the president and many leaders in Congress want — a competitive, premium-support model. If Mr. Bush doesn’t spend the money Congress has budgeted for a Medicare drug benefit in a way that creates private sector incentives for new programs, liberals will spend the money on an expanded price-controlled, entitlement that would be a death-knell for pharmaceutical innovation.

Mr. Bush has opened the door to consideration of a new idea, but he needs to put resources behind it to make it work.

Grace-Marie Turner is president of the Galen Institute, a not-for-profit health policy research organization based in Alexandria, VA., and at www.galen.org or P.O. Box 19080, Alexandria, VA 22320. She is the editor of Empowering Health Care Consumers through Tax Reform, University of Michigan Press, 1999.